🐧 Expensive mistakes made by expats (part 2)

Expat hedonic treadmill, comp packages, foreign investing
February 26, 2023

Today in 10 minutes or less, you’ll learn:

  • 💣 Three expensive mistakes made by expats
  • 😯 Expat hedonic treadmill, comp packages, foreign investing
  • ⚡️ How Yale endowment invests
  • 🇯🇵 Japan launches new visas, Ireland & Portugal halting golden visas

💣 Expensive mistakes made by expats (part 2)

Second post in a two-part series. All numbers below are in USD

1. Climbing the expat hedonic treadmill

Cost: $1k to $57k+

🎓 International school fees. For expat families, private schooling is a major expense. They often have trouble accessing subsidized public schools. Cost to send a first year high schooler to Singapore American School is ~$40k USD.

🏠 Expat housing. Expats like to live near other expats, which tend to be more expensive areas. For example, in Singapore, rent for a 3-bedroom apartment in a popular expat neighborhood Tiong Bahru is 40% higher than a further out area like Pasir Ris (~$17k USD more per year)

🛫 Flights, accommodation, and visa fees. Let’s be real: you will travel heaps as an expat cause why not?! A week-long holiday in Bali will run the bill up to $1k (excluding flights, visas).

🚑 International health insurance fee. Be prepared to 1/ fork out extra for regional (or global) coverage and 2/ pay expenses out of pocket, then seeking reimbursement.

How to avoid this mistake:

  • Account for lifestyle spending. I think it’s absolutely amazing to enjoy the expat lifestyle. Just also work backwards from your lifestyle goals and run the numbers.
  • Exclude high-cost regions covered in your insurance. eg avoid US coverage. Cover the countries you spend 90% of your time in and use a solid travel insurance in the rest.
  • Get an APEC / business travel card. Save hundreds of dollars of visa fees (and hours in queues) by using frequent traveler programs like APEC card & Singapore FTP.

2. Not negotiating non-obvious parts of your comp package

Cost: Thousands of dollars in savings

💼 Consulting vs full time status. Depending on country employment laws, I have seen companies sometimes offer a consulting contract instead of permanent employment contract due to a better tax profile.

💱Currency. Ask for your preferred currency (eg USD, SGD, local currency). Consider what currency position you’re taking. eg an American expat I know chose to get paid partially in Indonesian Rupiah (IDR), but later regretted when IDR fluctuated during Covid.

🛩️ Travel, housing, and living expenses. Some employers can subsidize or deduct these costs. eg I’ve heard of international schools deducting living expenses for teachers from their taxable income (not 100% sure how this works, but DM me if you know!).

🌴 Retirement accounts. Corporate employers like Meta may offer retirement contribution matching (free $$$), which expats can withdraw penalty-free once they leave the country. Check tax treaties between your local & home country first.

How to avoid this mistake:

  • Choose top 2 comp package components to negotiate. eg base salary, bonus, stock, tax/benefits (including above). Given limited time to negotiate, you will need to prioritize.
  • Run the numbers on tax profile. Choose consulting vs full-time status based on your financial goals.
  • Choose currency based on your spending rules. eg if you’re American in SG and you want to invest 50% of your income in the US → one option: ask for 50% of your paycheck in SGD for expenses and get the rest in USD for investments.
  • Max out your retirement contributions if you can get contribution matching, penalty-free withdrawals, and tax savings.

3. Being careless with foreign investments

Cost: Price of a foreign property

🏡 Getting exploited by a local nominee. In many countries like Indonesia & Vietnam, foreigners are not eligible to purchase freehold (own land outright) and leasehold (lease land for fixed period, eg 30 years). They work around by substituting a local nominee in their place in legal paperwork.

A Vietnamese-American entrepreneur told me the story of his family’s Saigon home, which they bought using a trusted local nominee in the early 2000’s. When they tried selling decades later, their nominee exploitatively charged them a 70%+ sales tax. With no other options, they asked an influential politician friend to speak with the nominee. Magically, the tax disappeared. 🤦‍♂️

Here’s a story of a similar situation for this Bali expat.

📉 Getting swindled into overvalued investments. Lately, I keep getting targeted on Instagram for “exclusive opportunities” to invest in new Bali hotel developments. I also see expats scrambling to buy up properties in Lisbon, where home prices are deviating 336% from the country average. There might be legitimate deals, but I would approach cautiously.

🏦 Underestimating upfront cash required. Be prepared for no mortgage or lackluster terms due to foreign banks being more cautious with loans.

How to avoid this mistake:

  • Purchase property/land under your own name. If you pursue a freehold using a local nominee, understand the risks.
  • Get testimonials when deciding agents/brokers. Avoid swindlers in places with weak rule of law by talking to other expats who have reviewed their services.
  • Consider 2-3 year fixed rate mortgages (if available). While you can’t find 30-year fixed rate mortgages, you might find refinancing opportunities for short-term interest rates in developed countries.

⚡ Quick Insight: How Yale Endowment Invests

Over the past three decades, Yale’s endowment fund has returned an impressive ~12% annualized returns, outperforming their peer university funds.

Along the way, they famously helped to pioneer a new model of investing that emphasized alternative assets. Typical expats hold mainly stocks, real estate, and their company equity. While retail investors shouldn’t necessarily copy, it’s fascinating to observe Yale’s endowment shifting  allocation from 70% US stocks/bond/cash in 1990 to <10% US stocks/bonds/cash and >70% alternative assets by 2020:

🌐 Beyond Your Borders

🇯🇵 Japan announced new visas (J-SKIP, J-FIND) for high-income earners and graduates of top-ranking universities.

🇵🇹 Ireland and Portugal announced plans to halt issuing new Golden Visas for foreign investors.

🇺🇸 Recent tech layoffs put a strain on H1B visa holders.

🇺🇸 Americans are now the top nationals interested in golden passport and visa programs (previously Chinese & Russians).

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Dexter Zhuang

Dexter is the founder of Money Abroad, a website and newsletter on building wealth for global professionals. Over the last 10 years, he's been a product leader, product manager, consultant and coach at companies like Dropbox, Xendit, and growth-stage startups across the US, Asia Pacific, and Latin America. His work has been featured in global publications like Business Insider, CBS, US News & World Report, and Tech in Asia. He graduated from Dartmouth College.

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